The demographic dividend is more than an education dividend

Abstract

The demographic dividend has long been viewed as an important factor for economic development and provided a rationale for policies aiming at a more balanced age structure through birth control and family planning. Assessing the relative importance of age structure and increases in human capital, recent work has argued that the demographic dividend is related to education and has suggested a dominance of improving education over age structure. Here we reconsider the empirical relevance of shifts in the age distribution for development for a panel of 159 countries over the period 1950 to 2015. Based on a flexible model of age-structured human capital endowments, the results document important interactions between age structure and human capital endowments, suggesting that arguments of clear dominance of education over age structure are unwarranted and lead to potentially misleading policy conclusions. An increase in the working-age population share has a strong and significant positive effect on growth, even conditional on human capital, in line with the conventional notion of a demographic dividend. An increase in human capital only has positive growth effects if combined with a suitable age structure. An increasing share of the most productive age groups has an additional positive effect on economic performance. Finally, the results show considerable heterogeneity in the effect of age structure and human capital for different levels of development. Successful policies for sustainable development should take this heterogeneity into account to avoid detrimental implications of a unidimensional focus on human capital without accounting for demography.